Brits to benefit from tax free property abroad

25 July 2008 / by Rachael Stiles

Under new legislation, Britons who own second homes through companies will no longer have to pay tax for staying in them.

Previously, Britons have been encouraged to buy through limited companies in order to avoid restrictive property laws in some overseas countries, but this will no longer be necessary once the new Finance Bill is passed, according to the Financial Times.

The Financial Times estimates that between 10 to 20 per cent of the 850,000 UK residents buying property abroad have done so by buying shares in a company which owns a property aboard, in exchange for being able to have use of the property for a certain number of weeks a year.

This system has enabled those wishing purchase French property, Spanish property and property in Portugal to avoid other rules too, such as "forced heirship", whereby local low dictates who inherits the property, regardless of what the owner stipulated in their will.

Those who are looking to buy in countries outside of the European Union were also free to do so without as many restrictions by buying it through a company.

This had drawbacks, however, as it made the owners liable for a UK tax charge, even if the property wasn't used for anything other than personal use, because using the home was seen as employees receiving benefits in kind.

Consequentially, tax was charged on the cash market value of the services and benefits received – in this case the use of a property abroad.

An exemption is now being introduced in the new Finance Bill to remove the tax liability on benefits in kind when the benefit is a holiday or retirement home. This even applies to those who rent out their holiday homes.

Furthermore, those who own property abroad and have to pay tax in previous years will be able to reclaim it, by amending tax returns still under enquiry, or by putting in a claim under the relevant section of the Finance Act.